Blog: You, us, everyone

Introduction:
ABB, with its headquarters in Zurich, is a key player in the power generation, transmission distribution and automation areas. The company serves markets world-wide and benefits from cyclical capex trends in the late-cycle end-market. The company’s strength lies in the fact that it identifies growth opportunities in EM (creating power infrastructure systems) and DM (renewing infrastructure) countries early.  

Due to the company’s unique institutional knowledge of power generation project management, it is able to offer innovative technologies at well above average prices in a crowded market. Furthermore, it has a unique understanding of how to manage large-scale projects with efficiency for the involved partners.

Under the departing CEO, the company has completed the implementation of an in-house led restructuring initiative aimed at improving the EBIT margins to above 16% by 2016. With this move, the company has set new standards for the whole industry. Furthermore, the company recently completed a number of strategic acquisitions which are closing technology gaps, a move which will help reinforce its market position, especially in North America.  


Strengths and weaknesses analysis / Fundamental analysis 
Strengths:

• Strong dual market exposure (i.e. developed and emerging markets),
• Strong long-term capital deploying strategy,
• Due to their age, it is anticipated that Western world countries (e.g. Europe and the Americas) will start renewing their power infrastructure very soon. ABB will grab a major part of this business,
• The company’s products are ahead of the competition,
• A conservative management approach has helped the company glide through recent years with few balance sheet issues. 

Weaknesses:

• The company has a significant amount of cash which it is unable to deploy in an efficient and profitable manner. Concerns about profitability may reduce future growth opportunities,
• The company is unable to generate long term organic growth, it will therefore inevitably overpay for future acquisitions, which will increase the risk for equity investors,
• The company’s order book contains a large number of government orders, the loss of these would represent a major risk to ongoing cash-flow and profitability,
• Weak government budgets world-wide and the absence of strong and clear energy policies may expose the company to value-destruction.

Investment opportunity / Portfolio management 
Operational risks: Low to medium 
Expected growth: Average
Investment orientation: Various strategies (Value, Swiss Premium, European Capex Winners, etc.)